State's Aura Of Thrift Punctured

Business Experts See Tax Bringing New Type Of Stability

Business Experts See Tax Bringing New Type Of Stability

September 18, 1991|By DAVID LIGHTMAN; Washington Bureau Chief

WASHINGTON — C During the Depression, writers described Connecticut as a "strange mixture of the past and future," a place where the people were adept at being both self-sufficient and sensitive to changes in the world.

They skillfully made things others needed, from revolvers to aircraft engines, and then took the money and spent it ever so carefully. So said the 1938 Federal Writers' Project, which was created to help the unemployed.

That image seemed to endure until this summer, when the state not only took longer to resolve its budget problems than any state so far this year, but also wound up with a personal income tax on wages.

"In a way, this punctures that image" of the hard-boiled, independent Yankee, said Roger Eddy, the Newington writer, farmer and politician. "We're along with everyone else now." Ralph Nader, the Winsted native and consumer activist who never thought much of government anyway, had a more blunt view of the budget chaos, notably the 53-day standoff after the fiscal year began: "It makes the state look ridiculous." Among many business leaders, however, the general feeling is that Connecticut's budget and tax mess may hurt the state's image in the history books, but will have little other effect.

Connecticut has a character that has been carefully cultivated over the years, State Historian Christopher Collier said in an interview. Its roots extended from the Colonial period to early 19th century, when the population was largely homogenous and the state was run by a tightly knit group of people.

Politics was not a popular profession then; most General Assembly members would serve one term and leave, allowing political strongmen to run things. The state developed along two lines that still characterize it -- innovative people and effective, if dull, politics.

In his 1983 "Book of America," Neal R. Peirce described a state with an ornery attitude characterized by "antiquated financing and

cautious leadership." Connecticut's reluctance to tinker with its traditions gave it a national image as a state that treaded carefully before fiddling with its basic beliefs. The lack of a personal income tax was an important part of that status quo.

"It became part of the folk culture," Peirce said in a recent interview from his New Hampshire home.

Although some of that mystique has vanished, many business owners are rejoicing; instead of old-fashioned income-tax lore, Connecticut now has a more modern lure -- it confronted its fiscal problems and agreed on a solution.

Experts in the business and political communities say the new tax could wind up bringing Connecticut more practical benefits.

"I don't think there's any downside to this," said John Endean, a vice president of the American Business Conference, a national group that speaks for the kind of high-growth, midsize companies that states covet.

The state had already rated highly with the Corporation for Enterprise Development in Washington, which issues annual "report cards" on each state's business climate.

Connecticut last year got a "B" for governance, which includes fiscal stability, and the adoption of an income tax should give the state higher grades, said Joyce Klein, a senior researcher. Of the three major sources of revenue -- sales, corporate and personal income taxes -- the first two tend to fluctuate with the economy to a greater degree.

Thus, by Connecticut's becoming the 41st state in the country to adopt a tax on wages, "stability and balance have improved," Klein said.

Ron Snell, fiscal program director for the National Conference of State Legislatures in Denver, agreed. "This improves Connecticut's competitiveness," he said. "Connecticut is probably done with its big battles, while others still have to go through with them." In other words, Connecticut might not need a major fiscal overhaul next year, whereas some states, such as Massachusetts, chose what Snell considered stopgap measures this year and may have to fight the budget battle again.

Even the drawn-out, contentious legislative session that put Connecticut in the national news should not discourage businesses from moving to the state. If a business does relocate or expand, it will look at more than the performance of a state's government.

"It's a consideration," said Nicholas S. Koskores, president of the New England Council, the region's leading business group. But he said Connecticut's new tax structure may be much less a problem than the instability of the banking system and the unavailability of reasonably priced energy.

Some evidence that the tax changes might have an ill effect on the business climate comes from New Hampshire, the last New England state without a tax on wages. Its state Division of Economic Development says it has fielded more inquiries from Connecticut businesses since the state became entangled in its budget mess.